Question

State any four limitations of raising funds through equity shares.

Answer 1

Answer:

Limitations of raising funds through equity shares.

1. If only equity shares are issued, the company cannot take the advantage of trading on equity.

2. As equity capital cannot be redeemed, there is a danger of over capitalisation.

3. Equity shareholders can put obstacles for management by manipulation and organising themselves.

4. During prosperous periods higher dividends have to be paid leading to increase in the value of shares in the market and it leads to speculation.

5. Investors who desire to invest in safe securities with a fixed income have no attraction for such shares.

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